As a stablecoin, Tether is pegged or “tethered” to the US dollar, as the coin’s name suggests, in order to minimise price volatility. Since USDT is a stablecoin, investors mostly use it to hedge against the crypto market’s volatility. Tether’s cryptocurrencies belong to a special subset of digital assets called stablecoins, which means their prices are anchored, or pegged, to a less-volatile asset. The stability of Tether comes from its currency reserves, as the company claims to hold dollars and other assets that are equal or greater than the total number of USDT in circulation.

Tether vs. USDC: A Comparison of Two Leading Stablecoins

• Imagine you have $10 in cash; if you deposit it into a digital vault, you receive 10 USDT tokens in return.
• Like any other investment, it comes with its own set of risks that investors should be aware of.
• Essentially, it serves as a digital “safe haven,” letting users park their money without worrying about wild price swings.
• This price stability amidst crypto volatility is why it remains popular among traders and exchanges.

With decentralized exchanges, you will typically only have the choice between which cryptocurrencies you’d prefer to sell your USDT for. If you want to buy USDT with other cryptocurrencies, you’re better off using a decentralized exchange. These platforms tend to offer a wider range of assets, they also allow you to use non-custodial wallets, meaning only you have control over your funds. However, they don’t allow you to on-ramp, so you can’t swap fiat currencies for USDT.

This guide will explain everything you need to know about taxes on crypto trading and income. To receive newly minted USDT directly from Tether as an individual, you will have to undergo a verification process which requires paying a fee computer programming wikipedia and completing a KYC procedure. Of course, as an individual, you also have the option to buy Tether using an exchange which will supply you with some USDT already in circulation.

Unique risks

USDT acts as a digital extension of the U.S. dollar, maintaining its dominance in offshore markets. It’s like a shadow that stretches far beyond the U.S. financial system, ensuring dollar liquidity globally. Tether can mint new USDT tokens or destroy (burn) existing ones to match market demand. Sometimes, USDT’s price might slightly move above or below $1 on exchanges.

How confident are you in your long term financial plan?

As part of the settlement, Tether was required to release regular reports on its business, including details of its funds held as reserves. Of the 76%, commercial paper and fiduciary deposits made up 65% and 25% respectively; the figures indicated that less than 3% of Tether’s reserves were held in cash. Stablecoins are designed to be pegged to a given currency; in the case of Tether’s main USDT cryptocurrency, the forgot which exchange cryptocurrency U.S. dollar. Tether claims that every token is backed by a dollar held in its reserves; the value of the token is kept stable by bots buying and selling whenever its value fluctuates from the dollar.

USDC is known for its transparency and regulatory compliance, BUSD for its integration with Binance’s ecosystem, and Dai for its decentralized collateral model. Maintaining a reserve of dollar-backed assets, Tether guarantees that its value remains steady. Let’s explore the ins and outs of USDT and its role in the broader crypto landscape.

Tether issues several fiat stablecoins and one that is pegged to gold. The most widespread among them is the U.S. dollar-pegged stablecoin USDT, with a circulating supply of about 73 billion tokens. Most traditional cryptocurrencies like Ethereum  and Litecoin (LTC) will see extreme fluctuations and volatility with the market, inflation and interest rates. Crypto traders use stablecoins like Tether to provide steady, reliable liquidity to get in and out of cryptocurrency trades without facing unpredictable losses from volatile price changes. Tether tokens can be bought and sold on cryptocurrency exchanges, including Binance, CoinSpot, Bitfinex, and Kraken. A pegged currency is often backed by reserves made up entirely or mostly of the pegged currency.

Market Forces and Arbitrage: Self-Correcting Prices

However, the vagueness and lack of official audits have led to extensive criticisms about Tether’s reserves. To mitigate counterparty risk, it also chooses to diversify its reserves across multiple banks. This way, if one bank fails, the price of USDT will not be impacted as heavily. In 2014, Brock Pierce, Reeve Collins, and Craig Sellars adapted Omni’s tech stack for RealCoin, and later renamed it Tether. Their Hong Kong-based company, iFinex, also owns the BitFinex crypto exchange. As of September 2020, there are over 14.4 billion USDT tokens in circulation, dashbtc charts and quotes which are backed by $14.6 billion in assets, according to Tether.

To find more investment options, see our list of the best crypto to buy. You might need a way to store these assets, so our list of the best crypto hardware wallets could help you. You’ve explored the ins and outs of USDT and (hopefully) gained an extensive understanding of Tether’s mechanisms, historical context, and practical applications. Despite numerous controversies and regulatory challenges, USDT remains the number one stablecoin in the crypto ecosystem. The regulatory landscape for Tether has been riddled with challenges.

The majority of its reserves are invested in US treasury bills, while gold and Bitcoin represent around 4% and 2% of the total reserves. Being an asset-backed cryptocurrency stablecoin has made USDT a safe haven asset for poor market conditions. If your goal is to profit from cryptocurrency trading, a more established currency such as Bitcoin will be a better bet on future financial gains. CoinCodex tracks 37,000+ cryptocurrencies on 200+ exchanges, offering live prices, price predictions, and financial tools for crypto, stocks, and forex traders.